Overheating of the Estonian real estate market but no crash | New

Before mid-summer, Bloomberg compared property markets in 19 countries and prices of found homes have risen much faster than rents and incomes in several countries.

Estonian experts do not believe that a crash comparable to 2008 is likely in Estonia.

Mihkel Eliste, an analyst at real estate agency Arco Vara, told ERR that if people who have taken out loans feel they can no longer repay them and the risks become too high, they will sell their assets.

“If everyone decides to sell at the same time, this can lead to oversupply. This in turn can lead to lower prices. This situation could lead to increased social tensions, as property investors start to postpone the rise credit costs in the rental market,” he said, suggesting that rents could start to rise.

But Eliste said property investors in Estonia can cope with the repayment of their loans.

Tõnu Mertsina, chief economist at Swedbank, said that while the ratio of apartment prices to wages has deteriorated since 2021, the situation is no longer the same as before the financial crisis.

“It may seem strange or surprising, but in reality, in 2005-2007, we were paying a lot more per square meter,” he said.

The demand for apartments is at its highest for 20 years but if there are many buyers, there are not enough apartments for sale. Combined with high inflation, this leads to an overvaluation of the housing market.

Mertsina told ERR it was difficult to estimate by exactly how much. The situation is unlikely to change in the near future.

“Real wages will fall and apartment prices will continue to rise rapidly this fall and into the first half of next year. Affordability will continue to deteriorate sharply,” he said.

But compared to 15 years ago, fewer loans are being made and investors and banks are better insured, making a sudden crash unlikely.

Housing prices are also rising due to shortages of labor and building materials, which means construction projects are on hold. Last month, inflation in Estonia was around 20%.

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